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Cullen/Frost (CFR) Stock Up on Solid Q1 Earnings & Revenues

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Cullen/Frost Bankers’ (CFR - Free Report) shares jumped 3.01% after the company delivered a positive surprise of 8.1% in first-quarter 2018. Earnings per share of $1.61 handily surpassed the Zacks Consensus Estimate of $1.49. Further, the reported figure compares favorably with $1.28 in the prior-year quarter.

Top-line strength and lower provisions were reflected in the quarter. Further, increase in loans and deposits, and a strong balance sheet position were the positives. However, elevated expenses and contraction of margin remained major drags.

The company reported net income available to common shareholders of $104.5 million, up 26% from $82.9 million recorded in the prior-year quarter.

Revenue Growth Offsets Escalated Expenses  

Total revenues came in at $321.2 million in the quarter, up 17.7% from the prior-year quarter. However, revenues lagged the Zacks Consensus Estimate of $328.3 million.

Net interest income on a taxable-equivalent basis climbed slightly year over year to $252.5 million. The upswing was primarily attributable to the rise in earning assets. However, net interest margin contracted 12 basis points (bps) year over year to 3.52%.

Non-interest income totaled $91.4 million, up 9.3% from the year-ago quarter. The increase was mainly due to higher trust and investment management fees, other income and Insurance commissions and fees, partially offset by lower interchange and debit card transaction fees.

Non-interest expenses of $196.6 million jumped 4.6% year over year. Increase in almost all the cost components led to elevated expenses in the reported quarter.

Strong Balance Sheet

As of Mar 31, 2018, total loans were $13.4 billion, up 9.7% year over year. Total deposits amounted to $26.7 billion, up 2.1% from the prior-year quarter.

Credit Quality: A Mixed Bag

As of Mar 31, 2018, provision for loan losses decreased 12.7% on a year-over-year basis to $6.9 million. Allowance for loan losses, as a percentage of total loans, was 1.12%, down 14 bps from the prior-year quarter.

However, non-performing assets were $136.6 million, up 15.5% from the year-ago quarter. Also, net charge-offs, annualized as a percentage of average loans expanded 11 bps year over year to 0.38%.

Profitability and Capital Ratios

As of Mar 31, 2018, Tier 1 risk-based capital ratio was 13.42% compared with 13.50% recorded at the end of the prior-year quarter. Total risk-based capital ratio was 15.36%, down from 15.62% as of Mar 31, 2017. Leverage ratio inched up to 8.62% from 8.34% as of Mar 31, 2017.

Return on average assets and return on average common equity were 1.36% and 13.62%, respectively, compared with 1.12% and 11.55% witnessed in the prior-year quarter.

Our Viewpoint

Cullen/Frost delivered an impressive performance in the first quarter. Rise in loan and deposit balance indicates continued organic growth. Though escalating expenses might continue to dampen the company’s bottom-line growth, it remains well poised to benefit from strong capital position and lower provisions.

Cullen/Frost Bankers, Inc. Price, Consensus and EPS Surprise

Currently, Cullen/Frost carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Southwest Banks

Driven by top-line strength, Texas Capital Bancshares Inc. (TCBI - Free Report) came up with a positive earnings surprise of around 0.7% in first-quarter 2018. Earnings per share of $1.38 outpaced the Zacks Consensus Estimate by a penny. Moreover, results compared favorably with 80 cents recorded in the prior-year quarter.

BOK Financial (BOKF - Free Report) pulled off a positive earnings surprise of 5.9% in first-quarter results. Earnings per share of $1.61 outpaced the Zacks Consensus Estimate of $1.52. Further, the bottom line compared favorably with $1.35 in the prior-year quarter.

Prosperity Bancshares Inc. (PB - Free Report) reported first-quarter 2018 earnings of $1.07 per share, which lagged the Zacks Consensus Estimate of $1.14. However, the figure improved 8.1% on a year-over-year basis.

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